By Daniel Kruger
U.S. government bond prices rose Friday, rebounding after early declines amid falling oil prices and concerns about the implications of a divided government on trade and fiscal policies.
The yield on the benchmark 10-year Treasury note fell to 3.193%, according to Tradeweb, from 3.232% Thursday.
Yields, which fall as prices rise, dropped as investors grappled with the fallout from U.S. elections that some said decreased the likelihood of additional tax cuts and could restrain the Trump administration's aggressive use of tariffs as a bargaining chip in trade disputes.
"We should really slow down the Trumponomics trade in terms of higher yields and a stronger dollar," said Gene Tannuzzo, a bond manager at Columbia Threadneedle Investments.
The yield on the benchmark 10-year note has risen about 0.8 percentage point this year as growth has accelerated in the U.S., fueled by corporate earnings growth that followed last year's tax cuts. At the same time, the European economy has unexpectedly slowed, helping push the dollar higher.
The yield on the two-year note, which typically moves with expectations for central bank policy, has climbed by about 1 percentage point.
Yields were also held down Friday by the persistence of recent declines in oil prices, which fell briefly below the $60 a barrel mark in New York trading. Oil is a major component in the consumer-price index, and falling energy prices could help check potential gains in inflation. Lower inflation helps support the purchasing power of a bond's fixed interest and principal payments.
Yields rose briefly early in the session after the Labor Department said the producer-price index rose the most in six years, on a month-over-month basis. However, about 60% of the increase was due to the gasoline component of the index, which led analysts to question how persistent the effects of October's 0.6% seasonally-adjusted rise in the index would be. Economists had expected a 0.3% one-month increase in overall prices.
"There's some concern about the sustainability of that number," said Christopher Sullivan, chief investment officer at United Nations Federal Credit Union. It may be more indicative of future pressures on corporate profit margins, as companies have had difficulty passing price increases on to consumers, he said.
Yields fell in trading overseas following declines in Asian stock indexes, as investors sought the safety of government debt. Investors there remain concerned about the potential for a further deceleration of China's economy, analysts said. They also pointed to tensions between the European Union and Italy as the country seeks to increase spending by running budget deficits that exceed the EU's guidelines.
Write to Daniel Kruger at Daniel.Kruger@wsj.com
(END) Dow Jones Newswires
November 09, 2018 13:16 ET (18:16 GMT)
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